Best Financial Markets Analysis Article Don't be fooled by recent mainstream press reports of a ‘pound rally'. What we're seeing here are short-lived bursts rather than a proper, sustained gain. The trend for the pound remains down.

Why? Because UK interest rates and the economy are both heading south.

Earlier this week, the Bank of England's Deputy Governor Charles Bean cautioned that the country's recession may be more deep and dangerous than forecast, possibly requiring the Bank to cut rates further.

Take a look at the graph below. It shows two things. First (the red line), we can see how far and fast the UK base rate has fallen to the current 300-year low at 1.0%.

Secondly (the blue line), it shows that while the interbank lending rate (Libor) has fallen too, the gap between the two remains significant, and has not narrowed to the extent required to kick start lending.

More doom and gloom as the base rate continues to fall

In fact, the Libor-bank rate gap widened to 1.12 points after February's rate cut, showing a reduction in banks' capacities to boost liquidity and keep lending. That's more dismal news for the economy… and for the pound.

Base rate drops typically cause sterling to weaken against other key currencies, so now is the time to prepare for a potential sterling crash to new all-time lows.

Editor's note: The next UK rate decision is on 5 March. For a way to protect yourself from a further sterling crash – and three other financial “timebombs” – click here.

BY SHIVVY ARORA
http://www.fleetstreetinvest.co.uk

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Comments

moneyads4u
19 Feb 09, 05:29

GBP/USD

Looks at the Technical especially on Daily + H4. Candle already reaching the BB middle band and finally candle will drop sharply after fail to penetrate R2.

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